Recommended Citation
Xuan-Thao Nguyen, Bankrupting Trademarks, 37 UC Davis L. Rev. 1267 (2004), https://digitalcommons.law.uw.edu/faculty-articles/892
Keywords
trademark, intellectual property, bankruptcy, bankruptcy trademark, license bankruptcy, intellectual property license in bankruptcy, domain names, goodwill, reputation, patent license, patent license in bankruptcy, assumption, assigns
Document Type
Article
Abstract
The explosive growth of technology in the last two decades has vastly expanded intellectual property jurisprudence and elevated intellectual property to a heightened status in the marketplace. Indeed, a company's intellectual property assets may now be its most valuable corporate assets. Moreover, the property value of some trademarks is significantly greater than that of the trademark owner's physical assets.
The term “intellectual property” is commonly understood to include patents, trade secrets, copyrights, and trademarks. Yet a paradigm has been constructed and enforced over the last fifteen years wherein only patents, trade secrets, and copyrights are included. The paradigm specifically excludes trademarks from some of the protections afforded to the other three types of intellectual property. Under the paradigm, the licensees of patents, trade secrets, and copyrights are allowed to retain the right to use the licenses after the licensor has petitioned for bankruptcy and decided to sever the license agreements. On the other hand, a bankrupt licensor's severing of a trademark license agreement extinguishes the licensee's license rights. This Intellectual Property Bankruptcy Paradigm (“the Paradigm”) is embodied in the Intellectual Property Licenses in Bankruptcy Act.
The Paradigm calls into question the normative values given to patents, trade secrets, and copyrights, on one end of the spectrum, and trademarks, on the other end. The fast changing role of trademarks in Internet global communication and commerce calls into question the exclusion of trademarks from the Paradigm. Further, the modern and less restrictive quality control practices and the integration of trademarks into the bundle of licensed rights in the marketplace undermine the foundation of the Paradigm.
This Article contends that the Paradigm's exclusion of trademarks is the result of a legislative reaction that occurred without a proper inquiry into trademark's status as intellectual property, and that the exclusion threatens to bankrupt the goodwill of trademarks. This Article argues that trademark's rapidly evolving role in the Internet economy and in integrated intellectual property licensing calls for an end to the exclusion of trademarks from the Paradigm.
Part I examines the phenomenal rise of trademarks through licensing and the global Internet medium. This Part analyzes how the liberalization of the quality control requirement in licensing arrangements has fostered the expanded role of trademarks in the marketplace.
Part II identifies the Intellectual Property Bankruptcy Paradigm in which patents, copyrights, and trade secrets--but not trademarks--are protected. This Part discusses the enactment of the Intellectual Property Licenses in Bankruptcy Act (“IPLBA”), and argues that Congress passed the Act in reaction to a court decision. Congress claimed that the creation of the IPLBA was necessary to maintain U.S. leadership in technology development. This rationale, however, does not justify the exclusion of trademarks from the Paradigm that protects only patent, copyright, and trade secret licenses. This Part explores the rationale and its limitations by examining, comparing, and contrasting patents, copyrights, trade secrets, and trademarks.
Part III analyzes how notable cases have perpetuated the Paradigm. This Part identifies the consequences of the Paradigm on trademark licenses by examining two cases in which courts have applied the law and extinguished licensees' rights to use licensed trademarks. Canons of statutory construction force courts to perpetuate the Paradigm, and do not permit courts to consider the high cost borne only by licensees of trademarks.
Part IV questions whether the Paradigm's exclusion of trademarks is rational in light of both the increased importance of Internet domain names as trademarks and the integration of trademark licenses as parts of the bundle of licensed rights. This Part focuses on the threat of bankrupting the goodwill of trademarks and its potential threat to the nascent e-commerce economy. This Part examines the consequences that ensue when the licenses of trademarked domain names and the licenses of trademarks in integrated licensing schemes are terminated and subsequently used by the bankrupt licensor or its authorized third party in association with different web pages, mix-matched, or materially different goods.
Part V recommends the end of the exclusion of trademarks from the Paradigm. In light of the changing role of trademarks and the integration of trademarks in intellectual property licensing schemes, an amendment to the existing law is appropriate. When Congress enacted the IPLBA, quality control was the rationale for the exclusion of trademarks from the protection provided under the IPLBA. Such concern, however, does not justify the exclusion of trademarks. This Part also proposes and evaluates ways in which the exclusion of trademarks should cease.
The Article concludes that the changing role of trademarks, the integration of trademarks into intellectual property licensing, and the apparent lack of benefits to the bankruptcy estate, unsecured creditors, and consumers, necessitate a shift in the Intellectual Property Bankruptcy Paradigm.